Icahn giving up Time Warner fight

DavidB. Wilkerson

CHICAGO (MarketWatch) -- Billionaire financier Carl Icahn has decided to give up his campaign to force a breakup of Time Warner Inc. because he may be able to reach a settlement with the media titan, according to a published report Thursday afternoon.

Icahn is backing down after several major Time Warner
TWX, -1.28%
investors told him that although they support the idea of being proactive to lift the company's flagging stock price, they would not back the breakup plan he and investment firm Lazard outlined last week, The Wall Street Journal reported. See Wall Street Journal story (subscription required).

Icahn and investment firm Lazard had recommended that a new Time Warner stock should consist of the company's filmed entertainment and cable networks, while AOL, the Time Inc. publishing unit and Time Warner Cable should become separate "pure-play" entities as a result of a restructuring. See full story.

Now, instead of nominating a full slate of possible directors to Time Warner's 14-member board, Icahn will only nominate five, the Journal said.

Possible candidates include Dale Hanson, former chief executive of the California Public Employees' Retirement System pension fund; Frank Biondi, former Viacom chief executive, who was Icahn's choice to replace Time Warner Chairman Richard Parsons if his efforts were to succeed; Peter Chapman, an executive with insurance firm TIA-CREF; and Alan Weber, ex-chairman of U.S. Trust, the Journal reported.

A spokeswoman for Icahn said that he had no comment. A representative of Time Warner also declined to comment.

If Icahn does get five directors placed on the board, it could create divisiveness, says Fred Lane, chief executive of Boston-based investment bank Lane, Berry & Co.

"Prior Time Warner directors are going to be looking askance at recommendations coming from these five because they come in with the Icahn agenda," Lane said. "Their interest is in short-term price performance."

Another issue is that many of Icahn's proposed directors, such as Hanson and Chapman, would bring little or no expertise from the media world to the table at Time Warner, Lane added.

Icahn's case for a breakup was hurt by the Lazard presentation, according to Lane. The premium Lazard said investors could get on Time Warner's current stock price was less than 50%, Lane said, and that wasn't enough.

Hal Vogel, president of Vogel Capital Management in New York, agrees. He said few money managers agreed with Lazard's analysis that a separate, fully-spun off Time Warner Cable would be worth more than Comcast Corp.
CMCSK
the largest U.S. cable provider with more than 21 million subscribers. "That was ridiculous," Vogel said.

Having four separate entities would have a number of disadvantages, Vogel said. "When you break it up into four pieces, not only do you raise the cost of capital for everybody, but you lose the negotiating leverage that is available to a combined entity." Time Warner says it is able to realize advantages from having its cable systems carry its cable networks, making Warner Bros. films and television shows available to its cable networks, and so on.

Having four human resource staffs, four sets of lawyers, and other additional layers of overhead would generate four times the cost, Vogel said.

Another problem for investors who would not get behind Icahn is that many of the problems Time Warner faces are common to all of the media conglomerates in this climate, Lane added.

There is uncertainty about how to cope with changing consumer habits as audiences move away from traditional ways of accessing content. Further, the advertising environment is choppy at best. Variations on these themes have put all large media stocks under pressure.

"I think the message here is, pick your targets wisely, and do not pick on managements or boards unless they are demonstrably inept and the management structures are demonstrably bloated and ineffective," said Lane. "I don't think that's a conclusion you draw from the Time Warner experience."

Time Warner has repeatedly said that it believes it is taking the right course under Parsons, but that it will consider Icahn's proposals carefully.

Time Warner closed unchanged at $17.97. The stock has been in the $17 to $19 range for two years, prompting Icahn's efforts.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.